Wednesday, September 17, 2008

"Two years ago, I warned that the oversight of Fannie and Freddie was terrible, that we were facing a crisis because of it, or certainly serious problems," Sen. John McCain, R-Ariz., told CBS this morning. "The influence that Fannie and Freddie had in the inside the Beltway, old boy network, which led to this kind of corruption is unacceptable and I warned about it a couple of years ago.”

How does this claim of foresight square with this interview that McCain gave to the Keene (NH) Sentinel, discussing the subprime mortgage crisis, in December 2007?

Q: “Well the dimension of this problem may be surprising to a lot of people, but to many people, to many others there were feelings that there was something amiss, something was going too fast, something was a little too hot. Going back several years. Were you one of them? Or, I mean you’re a busy guy, you’re looking at a lot of things, maybe subprime mortgages wasn’t something you focused on every day. Were you surprised?

McCain: “Yeah. And I was surprised at the dot-com collapse and I was surprised at other times in our history. I don’t know if surprised is the word, but...

Q: “S&Ls?”

McCain: “I don’t -- what did you say?”

Q: “The S&Ls."

McCain: "Yeah, the S&Ls."

Q: "Is this bigger than that?

McCain: “I don’t know the dimensions of this. It’s hard to know what the dimensions are. As I say, I never thought I’d pick up the paper and see a city in Norway is somehow dramatically impacted by it. When I say ‘surprised’ I’m not surprised when in capitalist systems that there’s greed and excess. I think it was Teddy Roosevelt who said ‘unfettered capitalism leads to corruption’ or something like that, that people have disputed for years.

“But so, in this whole new derivative stuff, and SIBs and all of this kind of new ways of packaging mortgages together and all that is something that frankly I don’t know a lot about.

"But I do rely on a lot of smart people that I have that are both in my employ and acquaintances of mine. And most of them did not anticipate this. Most of them, I mean I can find some that did. But, a guy that’s on my staff named Doug Holtz-Eakin, who was once the head of the Office of Management and Budget, said that there was nervousness out there. There’s nervousness. There was nervousness that we had such a long period of prosperity without a downturn because of the history of our economy. But I don’t know of hardly anybody, with the exception of a handful, that said ‘wait a minute, this thing is getting completely out of hand and is overheating.'

"So, I’d like to tell you that I did anticipate it, but I have to give you straight talk, I did not.”

Now John McCain did warn about the oversight of Freddie Mac and Fannie Mae. McCain stated that Fannie Mae's "quarterly reports of profit growth over the past few years were "illusions deliberately and systematically created" by the company's senior management, which resulted in a $10.6 billion accounting scandal" and that Fannie Mae "used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems." But I doubt that McCain was even aware of the extent of Fannie Mae's exposure to the subprime housing mess, or even the extent of banks and Wall Street investment firms exposure to the subprime mess. So I'm not sure if this is another John McCain lie.

However I do see that the McCain campaign is using McCain warning of the lack of Fannie Mae oversight as a dubious claim that McCain knew the housing crisis was coming. I'm not sure I can buy McCain's claim. For one thing, John McCain has a record of shifting his political views as a means to shamelessly pander for votes. This may be another example of McCain's pandering. The second reason is that while John McCain may be currently trying to position himself as a champion regulator, his record shows that McCain has consistently sought more government deregulation. From the Washington Post:

A decade ago, Sen. John McCain embraced legislation to broadly deregulate the banking and insurance industries, helping to sweep aside a thicket of rules established over decades in favor of a less restricted financial marketplace that proponents said would result in greater economic growth.

[....]

McCain hopes to tap into anger among voters who are looking for someone to blame for the economic meltdown that threatens their home values, bank accounts and 401(k) plans. But his past support of congressional deregulation efforts and his arguments against "government interference" in the free market by federal, state and local officials have given Sen. Barack Obama an opening to press the advantage Democrats traditionally have in times of economic trouble.

In 2002, McCain introduced a bill to deregulate the broadband Internet market, warning that "the potential for government interference with market forces is not limited to federal regulation." Three years earlier, McCain had joined with other Republicans to push through landmark legislation sponsored by then-Sen. Phil Gramm (Tex.), who is now an economic adviser to his campaign. The Gramm-Leach-Bliley Act aimed to make the country's financial institutions competitive by removing the Depression-era walls between banking, investment and insurance companies.

That bill allowed AIG to participate in the gold rush of a rapidly expanding global banking and investment market. But the legislation also helped pave the way for companies such as AIG and Lehman Brothers to become behemoths laden with bad loans and investments.

And there are even more examples of McCain pushing for further government deregulation:

In 2007, he [McCain] told a group of bloggers on a conference call that he regretted his vote on the Sarbanes-Oxley bill, which has been castigated by many executives as too heavy-handed.

In the 1990s, he backed an unsuccessful effort to create a moratorium on all new government regulation. And in 1996, he was one of only five senators to oppose a comprehensive telecommunications act, saying it did not go far enough in deregulating the industry.

As chairman of the Senate Commerce Committee for more than a decade, McCain did not have direct oversight of the financial sector. But he sat at the center of arguments between telephone, cable and satellite companies, almost always pressing for more competition.

"I'm always for less regulation," he told the Wall Street Journal in March. He added: "I'd like to see a lot of the unnecessary government regulations eliminated."

In a sense, it is not about what John McCain says regarding the issue of the financial crisis and the subprime mortgage collapse, but also McCain's past record of government regulation of industries, and how a President McCain would deal with these current crisis. Looking at Senator McCain's record, it appears that McCain supports even more government deregulation in business and industry. In a financial services industry that is melting down due to the subprime mortgage mess, do we want a President McCain reducing even more government regulation and oversight into that industry?

Update: Here is Rachel Maddow and David Sirota discussing John McCain's long history of regulation of business, or deregulation of business. From YouTube: